Refunds Given Over Two Tax Years

[cjames1985]

Hello!

I have a question that's really bothering me. Hopefully someone with an accounting brain can help me out.

I'm sorting out the books in line for the self assessment at the end of Jan. In the tax period of April 2010-2011 I received about 75% of my earnings from one client. Unfortunately however, that client cancelled the contract during the April 2011-2012 period (current) and I am now having to offer him a full 100% refund.

The books have been kept on a cash basis and since I'm only putting the refund through now I don't think I can say that the refund went through during the 2010-2011 tax period.

Obviously I don't want to be taxed on this income as I had to give a refund (although obviously in a different tax year). What's the best way of putting this on the self assessment?

BTW, I earn under 68,000 or whatever the limit is, so am filling in the simple returns.

 

[Robert Pearce]

Firstly, your tax return figures should be based on an accruals basis, rather than a cash basis, i.e. incorporating income that had been earned but not received and expenses incurred but not paid. Helpsheet 222 (on page two) confirms this.

To answer your question, it would help if you could give more details about the situation and the nature of the contract. Was the income you received in 2010/11 an upfront payment for work which, in the end, was never performed?

 

[cjames1985]

Hi Robert,

Thanks for getting back to me so quickly.

The payment was basically for publishing a series of articles on several websites. An initial payment was made and then the remainder once the article had been published and the client was able to see that it was live.

Unfortunately the websites were all hacked earlier this year and since I was unable to restore everything across all of the sites, I've had to issue certain clients with full refunds.

This particular client went quiet for a few months and so the refund is only going through now.

I guess essentially it was an upfront payment for work or advertising as the payment was for 'lifelong' advertising. It's a term I wish I hadn't used as it can be open to many interpretations.